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Lack of Substitutes Reduces Competition and Lowers Demand Elasticity
When a firm produces a brand with few close substitutes, it operates in a less competitive environment. This scarcity of alternatives makes consumer demand less sensitive to price changes, resulting in lower demand elasticity.
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Introduction to Microeconomics Course
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Lack of Substitutes Reduces Competition and Lowers Demand Elasticity
Imagine two companies, Company A and Company B, both sell very similar brands of bottled water. If Company A decides to significantly increase the price of its bottled water, what is the most likely immediate effect on the market for Company B's bottled water, assuming all other factors remain constant?
If a major airline significantly lowers the price of its flights from City X to City Y, and as a direct result, a train company operating the same route sees a noticeable decrease in ticket sales, the airline flights and train tickets are considered substitutes.
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For each pair of items listed, identify the primary economic relationship between them by matching the pair to the correct term.
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When the price of movie tickets at a local cinema increases, many people decide to stay home and watch streaming services instead. This shift in consumer behavior indicates that, for these consumers, cinema tickets and streaming services are considered ____ goods.
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A city's public transportation authority announces a significant and permanent increase in bus fares. Which of the following subsequent market observations provides the strongest evidence that ride-sharing services are substitutes for public buses?
Learn After
Firm Bargaining Power from Lack of Competition
A technology company releases a new virtual reality headset that requires a proprietary, patented type of data cable to connect to a computer. No other company manufactures a compatible cable. Based on this situation, what is the most likely characteristic of the market demand for this specific data cable?
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A pharmaceutical company develops a unique, life-saving medication and is granted a 20-year patent, which legally prevents other companies from producing a chemically identical drug. Given this situation, the demand for this specific medication is expected to be highly price elastic.
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A remote island community has only one ferry service providing transportation to the mainland. Because residents and tourists have no other viable way to travel to and from the island, the demand for tickets on this ferry service is considered to be price ____.
A company that manufactures high-resolution display modules for a major smartphone brand reorganizes its assembly line. Instead of each worker assembling a full module from start to finish, the process is broken down into 20 distinct steps, with each worker specializing in only one step. Which of the following is the most likely primary reason for this change?
In which of the following scenarios would a 10% increase in the price of a product likely cause the smallest percentage decrease in the quantity demanded by consumers?
Analyze the following market scenarios. Match each scenario to the type of demand elasticity it most likely exhibits due to the availability of substitutes.
Impact of New Market Entry on Demand